The 3 V's - and A's - of Supply Chain

This is year marks the 25th anniversary of the famous 3V's framework of Visibility, Velocity and Variability from Art Mesher, then a prominent analyst at Gartner. It is among the most influential supply chain research of all time.

With the anniversary of the 3 V's connected to the supply chain innovation awards at the CSCMP Edge conference in Orlando this past September, something clicked: Not only do we have the well-known three V's, which have withstood the text of time. But we also have 3 A's.

In 2004, Dr. Hau Lee of Stanford University, who earlier gained a measure of fame with his pioneering and highly influential work on "the Bullwhip Effect," published an article on "The Triple A Supply Chain."

And nicely for our purposes here, Lee's piece said that companies need to focus on three attributes, each of which starts with the letter A.

Let's take a look back at this.

The first A is "Agility."

Many companies, Lee said, play off speed against cost, but the winners respond both quickly and cost efficiently.

Of course, this is especially true for the increasing number of industries bedeviled by increasingly shortened product lifecycles, where slowness of response versus rivals can deliver an often fatal blow to the product line or even the entire company.

Lee equated "agility" with being able to respond rapidly to changes in supply, demand, market conditions, etc. It is, in a sense, similar to the notion of "sense and respond" that is increasingly driving the strategies of supply chain leaders.

So how do you improve Agility? Lee offered six principles in 2004:

1. Improve connections with partners to share changes in supply and demand more quickly (harking back to his work previously on the Bullwhip Effect)

2. Improve collaboration with suppliers on product design

3. Increase use of postponement strategies to delay adding value or differentiation as late as possible in the supply chain process

4. "Bulk up" a bit more on small, inexpensive components that often cause supply chain bottlenecks

5. Build more flexibility into logistics systems that can react to disruptions, using third parties as appropriate

6. Build a small team that is skilled in enacting contingency and back-up plans

The second A is "Adaptability": Agility can be thought of as relating to fairly short-time horizons.

Adaptability, on the other hand, has a more strategic orientation, according to Lee.

Leading companies "keep adapting their supply chain networks so they can adjust to changing needs," Lee wrote. "Adaptation can be tough, but it's critical in developing a supply chain that delivers a sustainable advantage."

In addition to short-term fluctuations to supply, demand and product lifecycles, markets themselves are constantly changing, and more rapidly than before, especially with the global economy. The supply chain strategies and networks that once served the company well can soon become obsolete as the market shifts occur.

"The best supply chains identify structural shifts, sometimes before they occur, by capturing the latest data, filtering out noise, and tracking key patterns," Lee says.

Keys to getting there:

• Monitor global supply chain economics more closely
• Outsource more where you can, as outsourcing can allow more rapid adaptation
• Make sure the supply chain impact on new product design is well understood

• Build different supply chains for specific market and product characteristics

The third A is "Alignment": Perhaps the toughest dimension.

"Great firms take care to align the interests of all the firms in their supply chain with their own," Lee wrote. "If any company's interests differ from those of the other organizations in the supply chain, its actions will not maximize the chain's performance."

Learn Why 97% of Supply Chain Professionals are

Turning to RFID - Download New Report Here

That can happen even within a company, of course. Lee said that in one point in the 1990s, HP's chip division went on a very low inventory strategy, which lengthened lead times. That impacted even its own internal customer, the printer division. As a result, the printer division kept high inventories as a buffer, when it would have been less expensive for HP as a whole to keep more chip inventory than the more expensive printers.

Of course, getting this cross-supply chain is not easy and, from my view, not commonly done in any meaningful way. Lee said that failure to reconcile these conflicting interests is a key reason the Vendor Management Inventory (VMI) programs fail to work, when VMI could really be a key strategy to reduce total supply chain costs.

How are the challenges of alignment overcome? First, Lee said, you start with alignment of information, "so that all companies in the supply chain have equal access to forecasts, sales data, and plans."

I will say there has clearly been much progress here in the past two decades.

Second, the "channel master" needs to more clearly define supply chain "identities" - in other words, making very clear the roles and responsibilities of each partner in a way that minimizes conflict.

Third, set up the relationships so that when any one company tries to "maximize returns, they also maximize the supply chain's total performance," Lee wrote. Companies must try to understand and predict how partners will react given current incentives, and make changes to get better alignment to overall supply chain goals.

So there you have it - the 3 A's of supply chain management.

Now the obvious question is, is there any way to combine the 3 A's with the 3V's? Or add another A or V? I believe there is.

Any reaction to this look back at the 3 A's? Let us know your thoughts at the Feedback section below.